ABB Ltd

At ABB, we call this OutRun. And it's how we help. ABB, engineered to outrun. Power us.

Connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun. Industries are the beating heart of our world. They move us, supply us, shelter us, power us, connect us. They improve our homes, our cities, our environments. And behind them all is ABB. Electrifying. Automating. Partnering with our customers to keep them not just running consistently, but running more productively and more efficiently. To constantly outperform. At ABB, we call this OutRun. And it's how we help industries become leaner and cleaner. ABB. Engineered to OutRun.

Greetings and welcome to this presentation of our first quarter results. As always, we have our CEO, Moten Virud. And now for the first time, we meet our new CFO, Christian Nilsson. Christian, you may be new in this setting, but you've been with ABB for about nine years as CFO of electrification. So by no means a new B2ABB in that matter. Great to have you here at the quarterly desk. I'm Ansa Vinod. I'm the head of investor relations. Morten and Christian will talk you through the results presentation as per usual, and then we open up for Q&A. And without further ado, I hand over to you, Morten, to kick off the presentation.

Thanks, Ansi. And it was good to see the quarter develop pretty much according to plan. This despite the escalated situation in the Middle East. Our priority has been to support our employees directly impacted by the conflict and do our best to keep our colleagues safe. When it comes to the business and our own operations, it has continued pretty much as normal. And overall, we have so far not seen a material change in general customer behavior. I would say that our first quarter order intake is evidence of that, as we for the first time reached orders of more than 11 billion. We improved across all P&L headlines. We had record cash flow for our first quarter. And Roche was at a standout 27% and about 25% without the real estate gain. I'm pleased with a quarter. In February, we published the 2025 Sustainability Report. This shows a steady progress towards our 2030 targets. One example is us reaching nearly 23% of women in senior leadership roles. So we're closing in on our 25% target. And we have made strong progress from the 14% level five years ago. Looking at our scope 1 and 2 emissions, we have now virtually reached our 80% reduction target. And another KPI is our waste to landfill, which we have reduced to 5.3% from 8.4% in 2019. And perhaps above all, it is very good to see that our employee engagement score keeps going up every year. For 2025, we reached a score of 80. This is up from 75 when we started the ABB way journey back in 2020. We always strive to improve, and this is an important tool for us to capture focus areas to prioritize. The employees are our most important asset. I am sure we will get to the topic of capital allocation at some point today. Outside of investing for organic growth, we distribute $2.1 billion in dividend. This corresponds to about 1.3% in dividend yield based on recent share price. And in early February, we launched an annual buyback program of up to $2 billion. If fully utilized, this is about 1.2% of current market cap. I've already messaged that we want to allocate more capital to acquisitions. Cash flow should continue to be strong. And with net debt to EBITDA of 0.3, we have plenty of headroom. So theoretically, we can make rather sizable deals. But like I've said before, base case is small to midsize bolt-ons. And then we aim to add somewhat bigger deals on top. And big, to me, would be along the lines of $4 billion we spent on Thomas & Betts and Baldor a few years ago. It would be great if we could get some deals up to that size. But key for us is the long-term value creation. I would rather make no deals than bad deals. And I have told the teams to do the right thing and step away if multiple becomes too demanding. But the teams are active, and I'm feeling hopeful that we will deliver also when it comes to M&A. Another proof point of us spending money in the right places is the automation team's launch of its Automation Extended Program. This is a strategic evolution of our DCS systems, where we have the world's largest install base. These systems are at the heart of industrial operations. But the customer's dilemma is that their control system must evolve to support digital and AI capabilities. But they don't want to disrupt operations in a process plant running 24-7. Automation Extended is our way to help customers solve this problem. To do this, at the customer site, we create an ecosystem which includes two distinct, yet securely interconnected environments. One being the core environment that controls critical processes. The other is the digital environment, which enables advanced applications, intelligence and real-time analytics. The secret sauce is that we have connect these two environments with external clouds through a unified management and maintenance service systems. And combined, this enables the customer to modernize without touching or disrupting the critical part of operations. In my view, we are uniquely positioned to offer this type of solution. No turning to Q1 orders. The chart shows the record high bar of $11.3 billion. On a comparable basis, this is up as much as 24%. And it is very good that the strong development is broad across all three business areas. But at 44%, I think it's fair to say that the orders surged in electrification. On top of this strong comparable growth, our total order intake was also supported by a material FX effect of 7% and 6% on revenues, mainly due to the strengthening of the euro against the US dollar. But let's focus on the business and dissect the market a bit. The short version is that we see persistently high demand across most of the main customer segments. On the positive side, data centers clearly stand out. Other segments to mention would be a strong utilities market with investment in grid build-out, stability and reliability. Customers also continue to spend on upgrades of electrical infrastructure for land-based transport. And linked to transport, we still see good market conditions in the marine and rail markets. And the same goes for commercial buildings with a related HVAC market. Looking at the developments through the quarter, the overall demand remains strong throughout. So for us, the Middle East conflict has not changed the overall demand picture so far. If we zoom in on the Middle East region specifically, there is no pattern of a weak march for neither electrification nor motion. It was only in automation where a weaker march was noted. And this only relates to the Middle East region where automation has an energy-linked customer base. For the group, the Middle East represents just below 5% of revenues, and automation is about one third of this exposure. Looking instead at the Gulf states as an isolated group, this is about 3.5% of sales. Turning to revenue of 8.7 billion, the usual pattern of sequentially lower Q1 is visible. But year on year, the comparable growth of 11% is even a bit better than we expected. The beat is linked to the stronger deliveries in both electrification and automation. Despite the backdrop of high geopolitical tension, there was no change in customers' willingness to receive shipments. And on the flip side, there was also no indication that demand was artificially boosted by customers' stockpiling. Revenue increased in both the project and short cycle businesses. And higher volumes was the biggest contributor to the strong organic growth of 11%. The teams are focusing hard on price management. It is key to balance the trust and long-term relationships with customers, whilst at the same time defending our profitability. The price components was close to 1% in the quarter. As a net total, we delivered another positive book to bill, NOAA at 1.29. The backlog is at the record level of 27.5 billion, up 22%. And in my view, we performed well in a strong market. I mentioned that orders increased across the business areas. The same goes for the different geographies. All three regions were up by double digits, led by the Americas at 48%, like for like. Looking specifically at the US, orders increased by 67%. This high number includes some large bookings, but also base orders were very strong and improved by about 30%. Europe was up by 13%, with a stable to positive development in all our top five countries. AMEA improved by 10%, supported by the three largest countries in the region. Let's turn to earnings, and this chart also shows a record quarter. We delivered operational EBITDA of just over 2 billion, with a margin of 23.5%. This total was of course supported by the capital gain of 377 million from the real estate sale. When disregarding these gains in both this and prior year, the margin was up by 70 basis points. 50 of this was achieved through stronger business performance and the remaining 20 was the net impact from FX and portfolio changes. I want to talk through the gross margin of 39.4%. This is a decline of as much as 290 basis points from last year. The bigger part of the drop, about two-thirds, is due to unrealized FX and commodity hedges. But there were also operational impacts from portfolio changes in motion, with the Gamesa deal now impacting the full quarter. And we have a bit of a price-cost gap. I'm sure you remember that in our Q4 presentation, we talked about the time lag between price adjustment and realized P&L effect. We highlighted it specifically for electrification, and we see it in the numbers for Q1. We also have a negative mix effect in both motion and automation, a consequence of high deliveries from the backlog driven project business. In fairness, 39.4% gross margin is still a very decent level, but I never like to go backwards, even if it's mainly due to the unrealized FX and commodity hedges. On a positive note, we improved operational EBITDA margin through stringent SG&A cost management. These costs declined to 19.2% of revenues from 20.8% last year. All in all, operational EBITDA increased by 37%, 28% in local currencies, and margin was up by 320 basis points, out of which 50 is real business-driven increase. Q1 was a challenging quarter with plenty of external volatility. And in my view, the team has done a very good job managing all of it, and I'm pleased with our results. And with that, I hand it over to you, Christian.

Thanks, Morten. And let's now take a look at what happened in the different business areas, starting with electrification. And Morten used the term surging orders. Seems a fair comment considering the comparable growth of 44%. Add to that 7% from FX, and we arrive at a new record order level of $6.6 billion. You see it in the chart to the left on this slide. It is clear that electrification market remains very strong. The good thing is that there's strength across the customer segments. In fact, all main segments increased at the double digit rate. And looking at data centers, it was up triple digits. For this segment, we have an order CAGR of close to 35% in 2019 to 2025. And the data center orders were very strong in both Q4 and in Q1. Pipeline looks good, and we expect this to be another strong year. Another segment I want to mention is utilities. Investment in the efficient, smart, and reliable grid are needed to make power available and accessible. We see this happening particularly in the US. The biggest segment in electrification is buildings at about 30% of revenues. Two thirds of that goes to commercial segment. And this market continues to be strong. The residential market, on the other hand, remains generally muted. We, however, performed well in the quarter and actually had growth also in the residential segment. Now, turning to revenues, we outperformed our own expectations. Short cycle business came through stronger. This resulted in comparable revenue growth of 15% and revenues of $4.6 billion. The chart shows the usual sequential pattern of Q1 being slightly lower than Q4 and then growing sequentially into the second quarter. We expect this pattern to be repeated also this year. Higher volumes drove majority of the comparable growth. And price added about 1%. The team is working on price management, but like we highlighted coming into the quarter, we had a price cost gap. Pricing did not quite fully offset higher costs for commodities and tariffs. We expect that this gradually improve as we progress through the year. But on back of operational leverage and higher volumes, as well as good SG&A cost control, electrification increased operational EBITDA by 25% to 1.1 billion. This reflects an improvement of 17% in constant currency. Margins reached 24% and was up 80 basis points from last year. All included, the team did a good job delivering record orders. record earnings, and a record first quarter margin and a strong cash flow. For the second quarter, year on year, we expect comparable revenue growth in the mid-teens range and operational EBITDA margin to improve. Now, let's turn to Motion, which also delivered a record order quarter. 9% comparable growth, plus 3% acquired growth, and another 6% from FX. This resulted in total orders of 2.5 billion. The segment pattern was very similar to recent quarters. We had positive momentum in areas like food and beverage and HVAC for commercial buildings. Similar to electrification, customers continue to invest in grid stabilization to secure power availability. On the softer side, there are the process industries related segments like chemicals, cement and mining. Orders in rail declined in the quarter, but I would say this is more due to timing, as we continue to see this as a strong area for us. Revenues of $2.1 billion had multiple drivers, led by comparable growth of 7%. Portfolio changes added 3%, and this is the Gamesa acquisition, which is now fully incorporated in the results for the full quarter. But there's also material effects of 6%. All in all, book-to-bill was positive at 1.19 and backlog increased to $6.6 billion. So based on Q1 revenues, Motion has a full three-quarters of revenue in the backlog. That's good top-line support for this and next year. Operational EBITDA was up by 11%, but the margin dropped by 110 basis points to 18.5%. There are several items to keep in mind. While the Gemesa deal comes with revenues of just over 60 million for the quarter, it made a small loss. This is according to expectations for the deal, but right now the dilution of margins is significant at 70 basis points. And this will be dilutive for 2026 as a whole. Our plans allows for a couple of years to bring profitability to double digit as we embed offering in our broad leading market reach. The second point to mention is high power division, where we had some operational inefficiencies. This diluted the margin by about 15 basis points. The team is on it and we expect this to be resolved during the second half of the year. And lastly, in the quarter, we had an adverse mix from higher share of revenues from the backlog driven project business. For the second quarter, we expect comparable revenue growth in the mid to high single digit range. And we expect operational EBITDA margins to decline year on year on reasons we just mentioned for Q1. Now let's turn to automation, where comparable orders increased by 5%. Morten mentioned earlier that this is where some market disruptions in the Middle East region was noted towards the end of the quarter. Energy plants have been targets for attacks, and these are automation customers. But so far, any change in demand patterns is contained to the Middle East region, which is less than 6% of automation's revenues. From a segment perspective, both marine imports continue this strong trend. Oil and gas was down on a challenging comparable. On a higher level, this market remains solid, but with the added uncertainty I just mentioned. Customers in the nuclear segments continue to be active. Mining orders actually increased in the quarter, although in general, this market remains a bit on the muted side for us. Orders in the discrete market, meaning machine automation, were up strongly on a comparable, which is still at a fairly low level. We see the general market for machine builders still being fairly cautious. Continued soft environments are still noted for chemicals and pulp on paper. Revenues were stronger than expected also in automation. On a comparable basis, we're up by 10%, with a full 8% in additional support from FX. So in total, revenues accounted to $2.1 billion. These higher revenues came with an adverse mix compared to last year, meaning we had higher share stemming from backlog-driven project business. This hampered the gross margin, but the team more than offset this with stringent cost control in, for example, SG&A. As a net total, the operational EBITDA margin improved 50 basis points to 14.7%. Making the same reflection on revenue coverage as for motion, the automation order backlog now sits at 10.4 billion. This covers nearly five quarters of revenue using this Q1 as a base. Looking into the second quarter, we expect automation's comparable revenue to improve in the mid-single-digit range. And operational EBITDA should improve year on year. Now, let's move to cash, which was another highlight in the quarter. The strong outcome was a result of improved operational cash flow in combination with a larger release on trade networking capital year on year. So despite higher paid tax and pressure from discontinued operations, we virtually doubled the free cash flow from last year to $1.3 billion. This includes a contribution of about $425 million from the real estate sale. This makes it a good and improved delivery from the business. So well done to the team. We had a strong start to the year and we feel confident in our business performance. So we aim to slightly improve the full year free cash flow from last year's 4.6 billion. This will be supported by higher cash flow in the business and a higher real estate impact. Then we have some anticipated offsets in the bridge. First, in continuing operations, we assume some headwinds from growth-related buildup of networking capital. Then we have offsets in the discontinued operation linked to the robotics divestment. This includes 300 million of tax cash impact from closing the deal. That's leaving about 100 million for 2027. Then we also have 100 million more in capex for the building of the robotics hub in Sweden. So all in all, we should be able to slightly improve free cash flow in 2026. And with that, Morten, I hand it back to you.

Thanks, Christian. Now let's finish off with the outlook. And we raise our ambitions for the year, both for top line and margin. It may seem bold to do it now when we don't really know the full impacts from the Middle East conflict. And admittedly, the risk for the global economic trading environment has escalated. We base our outlook on what we see and know now and make a judgment call on that. If there are major changes or disruptions outside of this, we will adjust to that new reality. We have a backlog of 27.5 billion. Markets were overall strong in Q1, and so far, our customer interactions give us confidence for the year. For 2026, we still expect a positive book to build, but we raise our guidance for revenues. We now expect comparable revenue growth to be in the high single to low double digit range. And the operational EBITDA margin should improve year on year, even when excluding the real estate gain in the first quarter of 2026. This is up from previous guidance of slightly improved. For the second quarter, we are up against a challenging comparable order intake, as last year we booked the $600 million order in automation. That said, we expect a positive book-to-bill. Comparable revenue growth should be in the high single to low double digit range and the operational EBITDA margin should improve year on year. So now, Ansi, let's open up for questions.

Yes, let's do it. And as a quick reminder, for those of you who have dialed in on the phone, please press star 14 to register to ask a question. And also please remember to mute the webcast as your line is opened. And also limited to one question, please. That way we will allow for as many of you as possible to be heard. You can also put questions through the online tool on the webcast and I will voice those questions over from here. And with that said, let's open up for the first questions. And we do so with Phil Buller from JP Morgan. Phil? You there?

I'm here. Hi, good morning. Thank you for the question. I'd like to dig a little bit deeper on the electrification performance, please. Do you believe that there is market share gain happening here? This surge in demand, is it company specific or is this an end market topic? Can you talk about the book to bill excluding data center? Because you talk about this broadening out of growth, but what's the data point behind that, please, in terms of the book to bill? And on the growth that we're seeing in those orders, is it fair to assume that pricing is more than the 1% that's running through the P&L, please? Thanks.

That's a long one question. Let's see how we go.

Yeah, I may start here. If we are gaining market share or not, that is, of course, it's the... We will all know more about that a few weeks from now, but our focus out in the market and when we look at the customer feedback, I think we are growing probably a bit more than the market these days. So that would be the kind of more of a general statement on that front. We also see the... The book to bill in electrification very strong. And I think they're also without the data center data center. We talked about in electrification, the triple digit growth. While we're looking at the non data center business, we're talking about double digit growth also there. And I think that's important to note. Kind of it goes for as application. It goes for the whole company. 90%. of ABBs, not data center. And that is growing very strongly. But then you put the data center growth on top. That is giving the very strong performance of the first quarter. For price, we see about 1% in the first quarter. There is a bit of catch up, as we said earlier as well, because we have seen raw material pricing coming up. with higher volatility and bigger increases. So there was a bit of delay. We are confident by the year end, we will catch up also on that front, that you have a full compensation between cost increases and the price point. When I talk about the 1%, that is for the whole company, but it is also relevant for electrification. We do see more... as expected of price increase in Americas and less in Asia due to a bit of like China as one example. But that is but also we see a positive slight positive trend also on price in China. So that's a bit on how we see the electrification part.

Very good.

Many thanks. That's great.

Thanks. And then we open up the line for Anders at ABG. Hello. Anders, are you with us?

Oh, hello. Good morning, KMNL. Yes, indeed. Fantastic. Just wondered about your capacity, basically, in electrification, given this very strong order trend. I mean, previously, you talked about even having some capacity slack in the U.S. And I know that you now add, well, another 100 million to the CapEx budget. So could you maybe just update us on that? And maybe also in connection to that, just, you know, the margin potential that you saw particularly in the U.S. in terms of electrification. What's the progress report on that, given these additional volumes?

So we are taking and getting more capacity online in the electrification, but it's not only electrification goes to also motion and automation. But of course, the majority of capex has been spent in the last few years in electrification. And we are doing that as well. We've guided also a bit higher capex spent online. This year. And we see that because with the order increase that is also needed. The capacity expansions that are is no coming online. What kind of money that was spent two years ago and last year. This is now coming into more capacity. We talked earlier. I can give you a practical example from over 2020. smart power unit in San Antonio, Mississippi. That factory is double the size today compared to what it was three years ago. But the production line is this year putting it into on place. And that means and we are hiring more people. We're training and you're getting capacity kind of more month by month, quarter by quarter up because building new capacity doesn't come in stepwise. You can complete a building, but getting automatic production line, getting people trained and getting that efficiency gain that you also need months by months, you know, is take some time. So that's what we're seeing happening now. I don't think we are the limiting factor when you're talking about build out, especially like in the energy expansion. We know the Equipment like gas turbines, large power transformers is more of a limiting factor when it comes to than we are on switchgear and the component level. We're also expanding capacity by appointing new partners, the OEM partners, the ones who will build switchgear and build more of these, do the system integration on ABB's behalf. And that is also how we can scale up capacity without doing everything in-house, but using that kind of partnership capability. We look at the margin expansion in the United States. I mean, first of all, we don't give detail, you know, in our quarterly report, but we have said earlier kind of where we are developing. And this is as we get more capacity online, as we get more efficiency out of that new capacity. We also see that margin is going up, but we are still developing. Not on the expected level. Our U.S. electrification business is dilutive to the rest of electrification, performing much, much better than before, but still a gap up there to the average level. And as you may know that many of our, let's say, peers in this market, the main profit pool comes from the U.S. and that is not the case yet. for ABB. So that's the upside we have talked about. So hard work still remains, but making steady progress.

And maybe I can add to the U.S. margin, Morten. As a reminder, this is, of course, good that we see these volumes coming in because that's one driver, the margin. The other one is the continuation of the build out of the operations in terms of robotization and automation. And that is also, like Morten said, we are expanding that and That also is a good driver of the continuation of the margin expansion in the U.S. electrification.

Very good. Thanks, Anders. Thanks, Anders. We take one question here from the from the web tool and we have Kulwinde here who wants to know, I want to better understand the growth in the short cycle businesses across the three business areas. And if this growth has benefited from large projects.

No, it has not benefited from large projects, that it hasn't, because the short cycle business is more smaller project, faster moving. What I can say is that when you're looking at the size, it is in all three business areas, automation and motion, more in the high single digit, while in application we see double digit growth on that side. So it is... Very much what I like to see, it's a kind of across the board. It's not standing out in one segment or one geography or one division or business area. It is really across the board. And I think that's what was very encouraging to see in this quarter.

Yes. And then we open up for another question from Martin at Citi. Martin, your line should be open.

Yeah, thank you. Your morning's marked the city. Just to come back to data centre, obviously across the industry, including for yourselves, Q4 was a phenomenal quarter and you've sort of beaten that again. What sort of drove that beat? Because I'm guessing you have some visibility in the pipeline. I guess it's quite a big uplift relative to what everyone thought sort of three months ago. It's just a bit of an understanding as to what drove that. And how did the pipeline still look when you're looking at any sort of customer build-outs and so forth for the remainder of the year? Thank you.

Thanks, Martin. When we're looking at the data center profile, it was many projects. It's hyperscalers. Yes, it's co-location locators. Yes, it is. It's Europe. It's Asia. But it is a big part. You saw that also with 68 percent growth in the United States. Of course, a lot of that also sits in from data centers. So that's kind of so it really also here across the board, there's no. Kind of call elephant orders. There's no big there's many or is it just high demand? What we see from especially from hyperscalers where we, as you know, work with all of them and make taking good making good progress there, but also increasing with scope. We talk about the medium voltage UPS earlier. It's a product that is gaining also traction and gaining more share in that market. So that, of course, for us, that's a scope expansion that would give us additional growth compared to to others. As we were historically not that I didn't have that share on that market. So overall, just. a very solid and strong demand in our areas. If you look in the outlook and our pipeline, it's still very strong. That's also the basis of the confidence that we're having when we're talking about the outlook, the discussions. We are more of course, executing what we're doing, but we're also putting a lot of efforts now into our technology roadmap, into how we are able to supply that 800 volt DC architecture that comes a year or two from now. None of the orders what we show today is related to that. This is all new projects to come, but we do see still a very solid a very strong pipeline, and the feedback from the customers in the discussions that we have is very positive and more about how we can do more and how we can help them to expand faster. Great, that's really encouraging. Thank you.

Thanks, Martin. And linked to the data center question, here's one from Risk who asks, do you think the data center market is heading for a more integration one-stop shop model and away from the partnership model? And do we have any white spots?

No, I think when it comes to how data centers are built today, it's always you work together different parties. I mean, first, of course, with the operators, if that'd be one of the hyperscalers who run the data center. But then you have also so much equipment inside there, that'd be racks that's being built. on cooling, that being both on chip level, but also on the whole facility. So there are so many parties involved. So what we do is to make more of that partnership thinking and with all the related parties on the site. That could be on the cooling site with many of the large cooling specialists, that most of them are our customers and partners in there. And then we need to make sure that Our solution fits perfectly well with that solution. That's the over commitment on that for we can work with money. I think that is one of our strengths in this field, because as capacity and the build out, this happened kind of now getting bigger and bigger. There is also a risk putting everything, all your eggs in one basket. And we also see that from from the especially from hyperscalers that they want to have a technology expertise from us. But they want us also to work with others where we are relevant so that we can come with that combined offering. And that's how I see the market. And that's also part a big part of our success here and how we are successful in those discussions.

And then we open up the line for Will at Capital Chevrolet, please.

Yeah, good morning and hello, Christian. Thank you for the question. I'm going to go a little off piste. I would like to ask a question about your automation extended commercial model. I thought it was interesting you've put it in the slide deck there and you've highlighted the scale of the installed base in DCS. and your opportunity to grow in software and lifecycle, but I don't see any financial targets or scoping. Could you perhaps give us some guide points or waypoints towards the size of the market opportunity, the scale that that might mean for revenue and margin, and how the leadership team in automation is going to track to that new strategy? Thank you.

Yeah, with our automation extended model here, it's very much how we can support customers in that journey. They have given us a lot of trust by having us being the provider of their distributed content. control system, the whole automation system of the plant. And that is why when we are looking at this, it's very much what we're tracking is the service revenue, what we call the upgrades here. This becomes for us like an ARR. This is when you are on site, this is how we track. We do that by customer and looking at also the kind of how we can support customers throughout the lifetime. We often talk about automation, about leading with service, you know, service of the sales and sales of the service. This is how that whole circle is moving. When we're looking at the margin and the profile of it, we are more still here looking at how can we long term be that technology provider partner for our end user customers and be able to also be their trusted partners when they come to specifying all the new equipment that comes in that helps over edification and over motion. This is what I talk about the power of technology. and how we're able to bring this together. That is also how what we measure about the success rate. So it's not only about measuring automation of what they're doing kind of with their own developed DCS and their own systems, but it's also what they're able to bring in the rest of ABB equipment and making an ABB or a customer's facility more and higher and higher ABB content on site. So that is our parameters that we measure, of course, And we believe that this is not only driving volume growth in our automation and for the ABB, but it also over time, we see that also is the more service content, the more of upgrade content. It also drives margins throughout because service is normally where it is a better margin profile than the new sales. So this is how we also then measure our automation team at part of their KPI model when we do that. But the main part here is to be a long-term technology partner for our customers because we believe, we see that that is what creates trust, and that means also we are part, when they make new expansion, new project, we are helping them also making their specification and making how it should run. And that's overall what drives performance for ABB in many of these segments.

Yeah, and maybe if I add, Morten, just a little bit of plug for the CFO of the ABB way. I mean, this is... automation extension in this one part that we are looking at. And that's just how we operate. We kind of obsessively love the accountability drive. We set targets and we operate and really measure our businesses. We talk about it, of course, at a division level and division minus one. But initiatives like this and when we look at extra areas of investing and so on, we bring the same rigor of accountability and measurement to that aspect. So just to add. It's a good example of an ABB way to further that.

And if we stay with you, Christian, here's a question from the web tool from Thomas for the new CFO. Timo has stated that he is comfortable with leveraging ABB to two times EV EBTA. Do you agree with this view? And what is the M&A capacity that you see?

Okay, kind of two parts of the question, I guess. First of all, I would absolutely concur with the prior view of Timo that kind of leveraging up to the two times give us comfort to do that in the current framework we are in terms of ratings and so on. If I think about that a little bit on M&A Firepower, that's the question, what's the second part? Yeah, if I think about the run rate of our EBITDA right now for the last 12 months, rolling will take us to $7 billion and change. less the current debt, and we do that at two times, will bring us to maybe 13 billion and some change. And of course, on top of that, we have the sale of robotics in the second half of the year. So add 5 billion to that. So in terms of M&A firepower in our current structure, I would be as comfortable as Timo was on that 2x, meaning we get to that 18 billion or so. And that, of course, like I said, means that we stay with our current framework of share buybacks of up to 2 billion and so on. And those are things that variables that one can always look at to add into that firepower, of course, if so would be needed. But, yeah, I feel very comfortable with the same two times leverage.

Thank you. And then we open up the call for Joe at Cowen, please.

Hey, guys, can you hear me?

We can. Good morning.

Good morning. I'm just curious, particularly in, I guess, across the board, but mostly in data centers, just given the magnitude, when you say that the order patterns are not really reflective of any sort of over-ordering or excessively early ordering, how do you really evaluate that? How do you understand if your customers aren't seeing you know, developments in the Mideast potentially spiraling and wanting to just make sure that they're procuring ahead of something that I know you're not seeing any behavior changes yet, but I guess what's the thought process in kind of understanding that dynamic?

No, it is based on the discussions we have with all our major customers in this field. That's kind of where our conviction and confidence comes from. We should also remember that Q1 last year was a bit lower in the data center space as we progressed. We kind of didn't. Yeah, that was not the booming quarter. I remember this time 12 months ago. I had a lot of questions that is data center slowing down and now it's the opposite. So a year can make a big difference. So that is also we have to take that into account as well. When you look back at the. maybe the transcripts from April 25. But, again, our confidence is built on the discussions in the CapEx plans, in also, of course, what our customers and partners, what they share with us, so what's their need. And we don't see a lot of pre-ordering, but, of course, it is about making sure that capacity will be allocated to them in the right time frame. And that is a high high demand and a high concern, of course, on the hyperscaler, but also from others. And we we're having an approach here, especially when you talk about U.S. capacity, that we don't want to kind of sell everything we can into data center. We are trying to find a balanced approach serving so many different markets as we are and giving their kind of a fair allocation or a fair treatment into these different segments. And that is what we're also looking at in this year. And for us, as always, the... I think that really pays dividends. What we see now also that we're having a very high say do ratio that we don't take orders just kind of to boost the order book. But we only take order where we say we will be able to deliver. We have capacity booked for it and we are therefore able to be kind of give you that confidence and also takes terms and conditions where our customers that we are confident that that's we're going to handle it in a good way. So that's kind of more the thinking behind it.

And I throw in another piece of that is that majority of these orders also comes with down payments. So that shows the commitment from the customers that we have that structure from the terms and conditions, like Morten said. So that's just a part to add. Yep.

Okay, very good. Thanks, Joe. And then James from Redburn, you're next in line here.

and good morning, everybody. Maybe I could follow up on the data center. And just to clarify, you mentioned that the scope of materials increasing more and more medium voltage UPS. Is there any way you could scale sort of the degree to which the medium voltage UPS business is growing as a share of your data center order cake? And tied to this, in general, the really strong orders you've had in data center in the last two quarters, What do you think the duration of delivery of those is on average? And is it changing?

First, when I talk about the scope expansion, it's what we referred to earlier on the medium voltage UPS side, where you're moving the low voltage UPS scope instead of doing this power supply reliability on that level. You can take part of it and do it on the outside side. often part of an e-house on the medium voltage level. That is able to reduce both the OPEX, the run cost, because it has better energy efficiency, and it also reduced the white space requirement, which is normally much more expensive to build than the grey space. So this is how we are able to address market. And as you may know, we are our position on the white space is not as strong as it is on the grey space. So that's kind of how we are able to gain some market share in this segment by getting more kind of a different technical solution. And we are the first And the only provider of a medium voltage UPS, which is also one of the building blocks that will sit in our DC 800 volt architecture. So it's one of the key building blocks. So that's why I'm confident kind of also in this long term view in that space. I think when we say looking at the different customers, there is no specific kind of bigger project. It was an overall strong demand across countries. So that's also how I would see kind of into the pipeline. We're working with a very diverse customer base here in the data center space. And therefore, that also what we would like to see and not being kind of fully dependent on one, but really having as wide customer base as possible.

That's helpful. Just to clarify, the orders you're taking in the quarter, would you expect to deliver those in 12 months time or 24 months time?

Most of them would be in the 12 to 24 months time horizon. And that is because, you know, a data center of these sites is not being you can get some smaller change orders that comes in, you know, kind of last minute. But most of them are going into when the building and the whole data center is coming up. That takes quite a while. So we're talking about 12 to 24 plus months time span. Thank you.

Thanks, James. And then we have another question. I hand that over to you, Christian. And I assume that this question is regarding electrification. It's from Olivier, who asks, which quarter do you expect a positive price-cost gap again? Because that's where we're talking about.

Yeah, we walked into Q1, as we said, and anticipated that there is a little bit of a gap, specifically for electrification. As natural, when we put price to offset the cost, a little bit some contractual differences or the timing of that. We expect that gap to shrink. It will shrink further in Q2. And we feel good about this being totally, let's say, closed out in the second half of the year.

Thank you. And then we open up the line for Daniela at Goldman's. Please, can you hear us?

Hi, good morning. Thank you for taking my question. I just wanted to ask about oil and gas exposures. I guess there's some hopes now that we will see maybe an oil and gas capex sort of diversifying a way out of the Middle East, given what has been happening. Can you remind us sort of your exposure and where sort of in the value chains you are more relevant? And also, if we do start to see, let's say, FDIs, how long does it start? Does it take until we start to see things flowing through in your backlog and P&L respectively? Thank you.

I may start here. It's the I mean, overall exposure. See, of course, as an energy industry sits with over automation business or for the company. We are at around four percent in overall, but of course, more in the the industry. I will get here, Ansi, probably to help me also with the exact numbers. But I mean, also saying here, our exposure and strongest on the oil and gas side in two areas is in the North Sea, where we have a strong position and more and more on the gas, especially on the gas side, LNG, is in the United States. very successful there on the when they talk about drilling pipelines and terminals, where we are partner in many of the big expansion that's happening already talking about in Texas and Louisiana, which are the two states that benefits the most these days. So those are projects that we are heavily involved in. And I think that was for me also very visible when I was at Sarah Week in Houston, earlier this year, talking about this energy expansion and the build out that is already ongoing. And we see that in some of the orders, especially on the LNG side for United States. I do believe that we will see and energy expansion kind of building energy resilience in so many countries after now what we've seen you know take Europe as one example being so in the past dependent on Russian gas a lot of that dependency have now been moved to the Middle East and that's kind of where we are today so doing a stronger build-out would in my opinion, be needed in the North Sea to increase, but also with new terminals that has been built, for instance, now both in Greece and Italy and the north of Germany, so we can receive gas here in Europe from other places, that being the United States, probably as the main part. So this is just, we will see more of that build-out coming in, I think, in in the next years.

And I think, Ansi, you would have also correct me if I... No, no, if you look at oil and gas, it's about 9-10% of the group level. And if you look at automation specifically, which you refer to, it's about double that size in terms of share of revenues.

So a bit more than I said also, yes. Good.

Okay, thank you.

Thanks, Daniela. And then we move to Ben at Bank of America Merrill Lynch.

Yeah, morning, guys. Thank you for the question. We've had some recent updates to the Section 232 tariffs in the U.S., and I was wondering if this is something that could have incremental impact to you, the incremental benefit, if there's any analysis or views that you can share on that topic in the U.S. Thank you.

Thanks. Maybe I take it on the 232. I mean, as we see today, right now, there should be fairly limited exposure for us. And the main driver for that limit is the content, where we are most often well below the 15% that is dictated in that 232 guidance. So for us right now, we see the exposure is fairly limited.

Super, Claire.

Thank you.

Thanks, Ben. And then we'll move to Jonathan at BNP Paribas, please.

Hello. Hi. Thanks for setting me in. Hey. Just really circling back to the balance sheet and the strength, it's really clear there to hear about the firepower. Obviously, that's a lot of cash that can potentially be deployed. What about the pipeline on M&A? I'm sort of thinking, how does it compare to a year ago? What are the regional focuses, the technology focuses, and all linked to that? In the absence of deals and with the comment about the money from robotics, do we really need $18 billion of firepower? Is there a reasonable chance of an incremental buyback program after that money comes in?

Yeah. If we need the 18 billion, it sounds like it's a big pile of money that I can fully agree to. So let's rather start on the M&A side. I think we have a we have a strong pipeline today when we are looking at deal. We are doing deals as well. I mean, we refer to the Siemens Gamesa deal as one example in motion that that. was about 3% of their comparable revenue for this quarter, just as one example. So these deals, which is more of bolt-ons, and those are happening all the time. I know that it doesn't require the 18 billion, but these are important also. That's how we see that we can have good fits with ABB, either by in technology or in market access. And that's kind of the deals, more the bolt-ons that is happening every month and you will see a list every quarter when they come on board. On us we have identified a few areas where we would like to expand also through M&A and those are markets where either we have a strong position already as ABB or we see an opportunity with a nice adjacency that we can make a relevant offering to our customers in that field. Of course, the focus here is, as you would expect, we're looking at can we get even more share in the data center space? Can we get more into markets where, like North America, where we do see good, strong growth? Utilities in general all over the world, grid automation that builds on grid resilience. These are all areas where we are looking actively at. into into M&A. And that could be. But one thing always we said at ABB and I've said from I started is all about value creation opportunity. We need to make a solid business plan and having a good payback on those deals that needs to be need to be, of course, better than doing a share buyback program on top of it. So it's the value creation that is there. And when we are confident and finding the right assets with also with an acceptable price, then we're going for it. So that's the criteria. As I always say, I would rather do no deals instead of doing bad deals. But of course, our focus is to do good deals. That's the focus. And we have a pipeline there. that we are working on and we will inform you all when we are ready with those kind of announcements.

Okay. Thanks, John. We have a couple of minutes left. So we're squeezing in Ben from OxCap also, please. Your line should be open.

Well, brilliant. Thank you, Antti, and hello, everyone. I guess my question may be a slightly odd one for Morten, but we've seen this step change in electrification and actually on the power side in the last couple of quarters. And I guess when you track your internal metrics, when you look at quotation activity, the kind of list of projects, the list of potential orders, Did you see that sort of step change, let's say, back in September, October? You kind of – looking at that tender pipeline, you knew it was coming. And I guess the obvious follow-on is when you look at that tender pipeline today, is it continuing to build? i.e., do we feel confident, or is it beginning to level out? I guess we're trying to figure out, is this the new normal, or are we just going to continue going up from here, which is pretty incredible.

No, thanks. Thanks, Ben. Would we have forecasted precisely the order intake of electrification in the last couple of quarters? I would have to say no. I think our hit rate has been higher than normally what I expected. We have seen a strong pipeline, a strong outlook, and we see that also going forward. But our hit rate has been on a very good level, very strong level. You also have to see when you're looking at what's the level to expect. I think kind of Q1 is always a very strong, if you look at the relative kind of total order, Q1 is normally stronger than Q2 in, not in, when I talk about like for like comparison. So if you look at the historical values, you will see that normally Q1 is a very strong order intake quarter. So, yeah. So we don't give any forecasts on order intake. We do that on revenues and on profit. But what I can say, pipeline still looks very strong. But historically, normally you have seen a bit of lower value in Q2 than what you have in Q, which is normally order intake, one of the strongest. Understood. Thank you.

Thanks, Ben. And with that, we close this session. Thank you very much for taking the time to join us. Much appreciated. And we'll see you in about a quarter's time.

Thanks.

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